The Federal Housing Administration has a favorite program designed to help low- and moderate-income buyers together with the funding of their new home. An FHA mortgage loan requires a rather low down payment of 3.5 percent of the loan amount, and offers a relatively tolerant set of loan, asset, and income guidelines for borrowers. However, the app does put down several restrictions for particular circumstances, such as the purchase price of a foreclosed property along with the refinancing of a higher-interest loan.
Foreclosures
The FHA has eased its own past limitation which did not permit an FHA mortgage to finance the purchase of a house the seller had owned for less than 90 days. This temporary rules change allows buyers to finance homes which were obtained by means of a financial institution, by an agency such as the Department of Housing and Urban Development or with a private investor at a forced sale, without waiting 90 days from the previous transaction. However, to prevent the quick”flipping” of houses done for speculative purposes, there may be no common financial interest between the seller and the buyer in the transaction.
Insurance
The FHA requires an up-front mortgage insurance premium of 2.25 percent of the loan amount, to be paid by the purchaser at the closing transaction. This rate was adjusted for new loans starting in April 2010, and is subject to change. Mortgage insurance premiums of 0.50 percent or 0.55 percent of the outstanding loan balance are also charged to borrowers with FHA loans.
Appraisals
The FHA does not allow mortgage brokers or other commission-based lenders to hire or possess any contact with the individual or business carrying out the house examination. The agency seeks to prevent any outside influence on the appraiser on the part of someone that has a financial interest in the mortgage transaction.
Refinancing
The bureau also has limitations for the”streamline refinance” program, which makes it possible for borrowers to refinance their loans with no appraisal and without credit qualification. The FHA requires that lenders verify income, employment and resources required to close the loan. The borrower must also have made at least six monthly payments on their existing loan, and all these payments must have been produced in the month they were expected (if 12 or fewer mortgage payments have been made).
Other Limits
The streamline refinance application doesn’t permit any closing prices to be included in the loan. Discount points, that permit the borrower to reduce the interest rate with a one-time payment, also can’t be rolled into the loan. The maximum loan-to-value ratio is 125 percent. To be able to accept a streamline refinance, the FHA will not permit more than just one late payment on the current mortgage over the past 12 weeks, and no overdue payments over the past three months.